Proposed Directors of Tirupati Graphite explain why they have requisitioned an GM. Watch the video here.
Hi Ragnar - I came to the same broad conclusions. If THS deliver on completion of "Vision 2020" (2021!), I roughly calculate EBITDA of $195m.
Have to admit didn't work out this FYE Sept 2020 - I looked forward past COVID19 on basis THS can deliver next FY on their guidance of PGMs 155 - 165k PGM oz and Chrome 1.45 - 1.55Mt at the very least, which provides EBITDA of circa $145m.
On dividend, I wouldn't mind too much if they reduced or skipped dividend again for 2021 until they get Vulcan Fine Chrome Project ($52.8m capex) out the way. I do note on their dividend policy: "dividend policy of distributing at least 15% of net profit after tax (‘NPAT’) and capital allocation to low-risk projects". So on the latter it could mean a reduced dividend, although I know they're also looking for financing for Vulcan.
I prefer to work out a “Net Free Cashflow (FCF)” Ratio rather than PE, but for SLP if you apply same ratio of x5 to “Net FCF” you get to similar valuation above:
Production: 68,000 (assuming “steady state” in current chrome market of 17k Oz PGMs per Q)
Life of Operations: 8yrs (would normally say 10yrs, with 12yrs+ in buoyant chrome market where Samancor are expanding operations and providing SLP more chrome tailings, however with Samancor reducing operations, it means SLP needs to increase dump material p.a. with lower grade compared to tailings, reducing both life and production). So this justifies a ratio of x5 which provides significant conservative discounted ratio compared to life of Ops.
SLP 4E PGM Basket Price = $2,275 minus 23% refiner’s fee & deductions = $1,750
All-in Cost (AISC + Capex): ZAR 11,500/ 17 (ZAR:USD) = $676
Free cashflow (FCF) = 68,000 x ($1,750 - $676) = $73m minus $18m tax = $55m Net Free Cashflow.
So as FCF is similar to Net Profit above, it actually will bring up similar valuation, albeit will be £255m market cap (93p). Again only based on SDO, does not include upside listed above.
However both valuations based on current shares in issue of 272million. Some of the 15m shares in Treasury will no doubt be issued as performance bonuses/ options over the years, but wouldn’t materially change the above.
Not sure if the "market" has digested the FYE June 2020 Net Profit (FY 1H 2020 Interims + Q3 & Q4 2020) of $51.5m based on 69,026 4E PGM, until they see it in B&W in the Audited Annual Report 2020 due to be released in September. If you took the Net Profit of $51.5m and PE of x5 (reasonable when life of production is at least 8yrs) + normalise for $55.9m cash you reach value of $313.4m (£241m market cap/ 89p).
That valuation would not take into account the fact cash position doesn’t even include:
- Trade Balance in SLP Favour: $29.7m owed to SLP (I’ve taken the Interims and updated for working capital movements stated in Q3 and Q4, but Audited Accounts will of course give more accurate update). SLP is unique compared to other producers/ miners who are normally the final “Client” and have large Trade Payables – SLP has the complete opposite and as the refiner is the final “client” in the chain, SLP has a huge trade balance owed to it from the Refiner (due to 4 month trailing payment from refiner to SLP).
- Volspruit palladium rich open-pit mine JV ($43m on the books, but more if all approvals secured and ready for sale/ dev. Liberum forecasted $50m disposal). DFS and studies, Mineral Rights all in place. They just need Environmental Authorisation and Water Use Licence.
- Recovery in chrome market and Samancor increasing production – other than open-pit chrome + PGM operator THS, I think private company Samancor are best placed to capitalise on any bounce in chrome market, specifically due to their symbiotic relationship with SLP. This would again ensure continued ops of SLP past 8yrs and even could increase production if Samancor expanded into Lesedi etc. This is more long-term 2+yrs down line.
- Due to large cash position and 7% interest SA banks pay out, SLP are now making circa $2m in interest each year.
- If SLP start paying a commensurate dividend (should be at least 5%+ with such a large cash balance), it will become "yield stock" too attracting other investors.
Hi Ragnar - THS open pits actually have estimated 13yrs left (2033), with 40yrs for the underground mine - PDF page 30 of the 2019 Annual Accounts provides a great little overview, as does the last presentation - the presentation even provides a THS 64 PGM basket split which is think 1st time I've seen them do this.
I've done a bit of a "deep dive" on THS on standalone basis as well as "THS versus SLP" basis just for comparison to explain why I went heavy on THS in the high 50s/low 60s share price and why it's now a bigger position for me than SLP. Like you I have struggled to find time to post, but will try and do so tomorrow, particularly as board is so quiet might be some new food for thought.
Whilst Chrome is struggling, no one is better placed than THS with its low cost open pits to ride it out than THS, even compared to SLP. Both THS and SLP are inextricably linked to chrome as you know: SLP through receiving their PGM rich tailings from Samancor (which will reduce in current climate) and THS as they of course produce both Chrome + PGMs. In fact "lower for longer" on the chrome front actually will benefit THS in long-term far more, as it will mean huge irreversible structural cuts in chrome supply and even before COVID19 entities like Glencore, Samancor and others were cutting production. At $130/tn, THS pretty much breaks even on the chrome, but of course still makes a huge profit on their 140k p.a. 6E PGM Oz. We also have to remember pre-COVID19 the guidance for THS was 155-165K oz of PGMs, increasing to 200K PGMs p.a. post "VISION 2020". This compares to SLP's 68-70K 4E PGM Oz p.a. in a world of low chrome, where they will receive less Samancor chrome tailings and use more of their "dumps" which have lower grade and will mean depleting life of operations (perhaps 8yrs instead of 10yrs in normal climate and 12yrs+ in booming chrome market). THS' mine life is more than double (13yrs open pit + 40yrs underground), before you even factor in their Zimbabwe operations. With 2x more mine life and 2x more PGM production, but factoring in SLP's stronger cash position, THS should be at least 3x market cap of SLP. SLP is currently £141m market cap, THS is £196m.
I think SLP remains significantly undervalued, particularly if they deliver on all ours and house broker Liberum's expectations for a dividend - however THS I believe is even more undervalued. But once I have more time will add more flesh to the bones tomorrow.
You have to take in D&A before you tax which will reduce the tax considerably. Additionally at present the minority government interest is 10% not 20% (they are still to pay the additional $10m for 10%) and I dont believe even kicks in from a profit distribution point of view until all Capex is recovered.
Would agree SLP Platinum Group Metals (PGMs) producer (£122m market cap) is a great company with some $45m cash in bank, but even better is larger PGM + Chrome producer Tharisa (£189m market cap). These 2 companies are the only 2 I would be looking at outside of gold miners, but THS pips it for me (1st time I've thought that in 3yrs when SLP has been chronically undervalued in comparison to others). I'm not confident SLP's Apr-Jun 2020 quarter will be very good and could be short-term weakness there, but who knows.
JLP I wouldn’t even utter in the same breath as all the other companies we’re discussing. It’s a bucket shop of continual placings with opaque “project earnings” that have no bearing to actual cashflow as they have so many costs and capex outside of this. If you cut through all the noise, JLP's 1H 2020 results show an improved Cash/ Debt position of $5.6m only, when it has a market cap of near £100m. One to avoid compared to the rest.
With the exception of HUM, I have to disagree on the other recommendations as being better bets than TSG.
SHG has circa 80K Oz per annum - at first one may say they have double the production of TSG and should be double the market cap. SHG being £127m and TSG being £79m. HOWEVER
1) SHG New Luika's Mine Life is only currently up to 2024 and that's already with recent extensions. TSG's is 2027 at the earliest and doesn't incorporate the recent additional exploration (“bonanza grades”) and the future exploration plan is clear as per recent presentation on their website, so no doubt will extend through to 2030. Whilst I believe SHG should also be able to extend into and past 2024, the way forward is not nearly as clear. So TSG is effectively double mine life of SHG.
2) TSG pays a dividend
3) TSG's AISC truly is AISC. SHG omit key cost items. SHG have a constant "development Capex" of around $4m each quarter. It's been nigh 3yrs since they achieved commercial underground production, it's ridiculous to still be logging such huge Capex - it is clearly Opex or Sustaining Capex and therefore should be included in AISC. This alone adds $200 per Oz hidden outside of AISC. When you add the VAT which is not likely to ever be refunded in its entirety, SHG's AISC is $1,000+
4) In this gold bull market SHG still have 23,048 Oz forward sales to work through at circa $1,260! That's $13m of lost revenue at current gold prices. They will close this all out in H2 2020 supposedly, which will be over 50% of their H2 2020 production. That means if gold stays at $1,800 which all other on-hedged gold miners like TSG will be realising, SHG's average gold price will be circa $1,530 per Oz.
5) SHG have a silver stream agreement so have negligible benefit on Silver. TSG has large silver quantities and will benefit from the rising silver price.
6) TSG's additional project Rodnikova with resources: + 1Moz at 5.3 g/t Au and 7.4Moz Ag is far superior to Singida in grades, size, mine life etc. and the scoping study is imminent. Additionally both TSG's mines are 100% owned whereas SHG do not own 100% of their mines and the Acacia fall-out and Mine Tax/ Ownership changes could still hit SHG. So it would not be correct to compare TSG’s Gross gold production (which is also it’s Net) with SHG’s Gross production, whereby due to % ownership the Net to SHG is less.
7) SHG’s Kenya acquisition still hasn’t yet diluted the shares in issue – another $7.5m worth has to be added, so actually the normalised SHG market cap is already circa £135m. Whilst Kenya is promising, it’s highly speculative and a long long way off, perhaps 3yrs+ if everything went according to plan.
As much as the western mainstream media may try and paint Russia as the bogeyman, from a gold mining business perspective history has shown it’s a very safe jurisdiction. Not so much with likes of Tanzania and “The Bulldozer” at the helm. Both undervalued with gold >$1,700+, TSG moreso.
Yep very good - in Q2 they have produced 6,028 oz from Vein 25 alone, so add that to whatever has been produced from the Main Zone and hopefully we should get a bumper Q2 result! Q2 result should be reported in mid-july according to this RNS, so perhaps late next week?
As you mention panda grades are exceptional > 50g/t and they have also found further "veinlets" so could be bigger than anticipated: "exploration works have discovered the ore body at secondary veinlet of Vein 25, which was not previously known."
Shows how important Single Mine Origin (SMO) initiatives are like Hummingbird promote. Being a WGC member also adds further legitimacy
The ability to launch share buybacks is a resolution for the AGM: "Special resolution 6: Purchases of own shares by the
Company". Although it has also been Resolution previously, but they're now in a far stronger position to act on it and so they should at this gold price.
In terms of shareholder queries, I also asked a question on dividends but probably from a different angle to GB because I still think it's still to early for sustainable divs - I asked whether they would be formulating a dividend policy as part of the 1H 2020 Interims (hopefully released August) and then maiden dividend 1H 2021. I personally would like to see:
1) AGM RNS which includes some pertinent info to some shareholder queries that would be "new info", including that they're formulating dividend policy
2) Dividend Policy as part of Interims released in Aug/Sept
3) Share Buyback(s) in Q3/Q4 2020 if we're still this undervalued, to protect against cheap hostile TO and to realise correct valuation. This can be ad-hoc and 1-time or at any time, unlike divs which need to be sustainable and consistent.
4) Dividend in Q1/Q2 2021
How is it a reverse takeover? Pasofino Gold are acquiring ARX and there is no mention in the notification that any ARX directors are transferring/ taking over the Pasofino Gold BoD nor what the acquisition cost is, which is strange. Surely Pasofino Gold shareholders are required to know how much it cost for them to acquire ARX.
It's far too early for a dividend and there's many reasons why they wouldn't pay one yet. I know we've all been guessing, but with COVID19 impacts ($100 increase to AISC which will be front-loaded in the year to Q2 2020), I do not believe like others we will go from Net Debt to Net Cash just yet - this will likely occur in Q3.
We need a cash buffer for "rainy day" unforeseen events like COVID19 2nd wave, operational/ regional issues etc., of at least 2-3 months working capital. We need to build cash to fund Kouroussa - it should not be 100% debt, that would not be in interests of shareholders, as ultimately we pay through the interest on that debt. If gold stays at $1,700+ 60%-cashflow 40%-debt would be better split.
I do think though that it will be right time to announce a dividend policy in the Interims for period ending June 2020 (Aug release). I then think if gold stays at $1,700, a maiden dividend should be provided in early 2021 (announced as part of Q4 2020 or Q1 2021 results). At these gold prices funding Kouroussa partly from cashflow and a dividend should not be mutually exclusive - they can both happen.
HI Ragnar - long time no speak, hope you're well. Are you aware of any websites providing relatively updated "real time" prices on Ferro Chrome/ Chrome Ore?
Very difficult to find any so whilst you can find news articles from googling and seeing the Chrome price was around $170/tn in early June, can't find anything to see what it is now.
That's not correct - the total number of shares in issue is 87m + 22.9m in treasury - prior to July 2019 buyback the shares in issue were 110m
Refer to Section 27 Share capital and reserves of the 2019 Accounts
"At the reporting date TSG had 87,158,508 ordinary shares in issue and held 22,894,565 ordinary shares in treasury"
I of course agree with sentiment though that TSG is extremely undervalued if they hit their targets for 2020 and achieve higher grades and higher Q production as we all expect. Although I don't agree with comment on ALTN, but that's subject to separate thread and board! I'm in HUM, TSG, ALTN and SRB in that order of my investment sizes in each.
Cflather - they usually update the SLP PGM basket price every 6 months in the presentation that accompanies the Annual Report and Interims. It differs over periods as each SDO site has a different % of PGM splits:
http://www.sylvaniaplatinum.com/component/jdownloads/send/77-2020/454-updated-corporate-investor-presentation
If you jump to pg.19 of the last presentation, in top left you will see split:
Rh: 12.5%
Plat: 62.1%
Pd: 25.2%
Gold: 0.2%
However going forward Samancor who provide the chrome tailings which SLP process are reducing production at some sites, not others, SLP covering shortfall with dump material etc. so the split more than any other period could change from that in presentation.
There's also other major issues with SHG I was not happy with and ended up selling. They continue to have recurring large Capex costs not included in AISC - considering Underground Mine Commercial Production was years ago, it's bizarre this is classed as "Development Capex" and outside AISC when it should be Sustaining Capex and included in AISC. It is one of many reasons forecast cashflow never marries up with actual Net Debt movements.
Development Capex was some $20m in 2019, way over the Mine Plan - now in Q1 2020 they don't appear to even include Capex costs anymore, just the small footnote: "Development costs at the BC, Luika and Ilunga underground operations are not included in AISC."
Edit: 2yrs to production should I say, with Life of Mine 5yrs and like Yanf, much room for expansions upon that
The 2 Projects can not be compared at the moment - we have no idea what the Capex, AISC or IRR of SHG's Barrick's Kenya assets is yet - they're still working on it!
However we know from HUM already the Guinea Kouroussa Gold Project is USD 90m Capex, 2yrs production and 1.18Moz of gold at >3g/t. Another Yanfolila effectively - rinse and repeat.
Other breaking news: "French forces kill al-Qaida's north Africa chief in Mali"
https://www.theguardian.com/world/2020/jun/05/french-forces-kill-al-qaidas-north-africa-chief-in-mali
The April 2020 presentation was pretty clear a dividend of at least $3m will be paid out:
"FY20 base case guidance of $3m dividend +potential for special dividends, as appropriate" (pg.30)